Case Facts
The case arose as a jurisdictional dispute between two commercial parties. Brinkibon Ltd, an English company, wished to serve a writ on Stahag Stahl und Stahlwarenhandelsgesellschaft mbH, an Austrian company based in Vienna, outside of the jurisdiction. To do so, Brinkibon was required to establish either that the contract had been made within England or that a breach of contract had occurred within the jurisdiction.
The facts concerned a contract for the sale of steel. Negotiations had taken place between the parties, and Stahag had made a counter-offer to Brinkibon. Brinkibon argued that the contract was formed in one of two ways: first, by a telex sent from its offices in London to Stahag's offices in Vienna, purporting to accept Stahag's counter-offer; and second, alternatively, by acceptance by conduct through instructions given by Brinkibon to its bankers in the United Kingdom to open a letter of credit in Switzerland in favour of Stahag.
The first trial granted leave to serve out of the jurisdiction. The Court of Appeal reversed the grant of leave, holding that the contract had been made in Austria, not England. Brinkibon appealed to the House of Lords.
Held
The House of Lords dismissed Brinkibon's appeal and affirmed the decision of the Court of Appeal. Applying the principle established in Entores v Miles Far East Corp [1955], the House of Lords held that where acceptance is communicated by an instantaneous means of communication — such as telex — the contract is made when and where the acceptance is received. Since the telex sent by Brinkibon was received in Vienna, the contract (if any) was formed in Austria, not in England.
The House of Lords further held that Brinkibon's alternative argument could not succeed. The steps taken by Brinkibon in instructing its bankers in the United Kingdom to open a letter of credit in Switzerland in favour of Stahag did not amount to acceptance of the counter-offer within the jurisdiction. Accordingly, no contract was made in England on either basis advanced by the appellant.
The House of Lords also confirmed that the alleged breach or repudiation relied upon by Brinkibon had occurred outside the jurisdiction, in Austria. Leave under that paragraph was therefore equally unavailable. The appeal was dismissed on all grounds.
Ratio Decidendi
The ratio of the case establishes and confirms three interconnected propositions. First, for instantaneous means of communication — including telex — the general rule is that a contract is formed when and where the acceptance is received by the offeror, not where or when it is sent by the offeree. Both the time and the place of receipt are determinative under this rule.
Second, the House of Lords expressly affirmed the principle from Entores v Miles Far East Corp [1955], which had itself drawn the distinction between postal communications and instantaneous communications. The postal rule, originating in Adams v Lindsell (1818), treats acceptance as complete upon posting and applies to letters and, historically, telegrams. That rule does not apply to instantaneous forms of communication such as telex, telephone, or analogous technologies, where communication is effectively simultaneous.
Third, the general rule for instantaneous communications is not absolute. It applies as a default where telex messages pass directly and immediately between the principals themselves. Where this is not the case — for example, because the message does not reach the intended recipient at the time contemplated, or is transmitted through agents or machines operated by third parties — the general rule may not apply without qualification, and the determination of where and when a contract is formed must be resolved on the particular facts.
Obiter Dicta
The House of Lords made a number of important observations beyond what was strictly necessary to decide the appeal. It was observed that telex communications may not always involve direct and immediate transmission between the principals to the contemplated contract. The senders and recipients of telex messages may be servants or agents with limited authority rather than the contracting parties themselves. A message may not reach, or may not be intended to reach, the designated recipient immediately; it may be transmitted outside office hours or at night on the assumption that it will be read at a later time. Error or default at the recipient's end may prevent receipt at the time the sender believed the communication had arrived. The message may also be sent and received through machines operated by third persons unconnected to the principal parties.
In light of these practical variables, the House of Lords cautioned that no single universal rule can be formulated to govern all cases involving instantaneous communications. Each situation must be resolved by reference to the intentions of the parties, sound business practice, and, where appropriate, a judgement as to where the risk of miscommunication should fall. This obiter guidance has proved significant in anticipating the legal challenges posed by subsequent technologies, including electronic mail and other digital communications, which share some but not all of the characteristics of telex.